Property Investment Tip #1: How Leverage Can Make You A Successful Property Investor

When you purchase investment property, there is something very essential that you have to use if you want to become successful - LEVERAGE.

If you think that you can do it all on your own, it is going to be a very slow and painful way up. Prudent property investors constantly leverage on other people's time, skills and most important of all, money, to create a portfolio of investment properties that consistently generate money for them.

The fastest way to leverage is through the use of a bank loan. Let's keep things practical and assume that your investment property is valued at $100,000. If you were to pay cash for it, you will have to come up with the $100,000 on your own. Whereas, if you take up a bank loan, you probably only need to come up with about $10,000 and borrow the rest of the funds. And after that you rent out the investment property and your tenant will pay off your bank loan.

Just imagine if you were to purchase an investment property valued at $1 million or much more. How are you going to raise that kind of capital?

Yet another reason to use a loan instead of forking over the entire cost of the investment property is that in the future, if your investment property increases in value, you would have made a huge income. In the event that the investment property increases in value by 10%, it is possible to sell it off at $110,000, therefore you turn a profit by $100,000 given that you only paid $10,000 as the down payment and borrowed the balance. Now compare that to if you paid cash for the investment property. Your entire profit would only be $10,000 which is the sum that the investment property increases in value.

Obviously this is a very simple calculation, but in reality, you still have to consider other elements like prices, interests, legal charges and other miscellaneous costs that the sale and purchase of your investment property will incur.

Another way to leverage is with other people's skillset. This is where participating in a team can really be beneficial. Savvy property investors always socialize with other property investors. Sometimes, they contact developers together as a team and see if they can secure good buys. With more people in a team, they can each bring something to the table and have the ability to make better decisions when it comes to selecting investment properties to purchase.

Furthermore, not everyone will likely have the spare time to go shopping for investment properties. So they can diploy several people from the team to go have a look at the property and see if it meets to their expectations. This is also where other people's knowledge come into play. You may not know the location where you wish to buy your investment property really well, but somebody else on your team might. You may think that the area looks good but your team member may disagree because he or she recognizes something that you don't.

This is how excellent property investors are able to amass a sizeable pool of investment properties in a short period of time.

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